Louisville, Ky.—Increasing investor interest has been noted lately in the Louisville, Ky. Market.

“Louisville is seen as a stable market; we don’t go up like the coast areas or drop like they do,” notes Aaron Johnson, principal broker in Marcus & Millichap’s Louisville, Ky. office. “Investors like this area because of that long-term stability. … They want something where they can get some real value, some real return on their investment, so that’s where Louisville stability really looks good—that’s brought in some new investors, some new blood, into the area recently.”

Many out-of-state buyers continue to seek assets in the metro. “Three years ago, about 80 percent of my sales were out-of-state buyers,” Johnson tells MHN. “When things crashed, 80 percent of my sales were in-state buyers. Now we’re back to about 50-50.”

Louisville has some interesting economic drivers, points out Johnson, with UPS perhaps the strongest one. In fact, the company recently completed an expansion of its Worldport global air hub. Additionally, the Kentucky Economic Development Finance Authority has approved millions in tax incentives to attract distribution firms to the metro. Job creation in these industries is expected to bolster demand for Class B and C rentals, according to the report.

Louisville-Jefferson County reported an 80-bp drop in unemployment from Feb. 2011 to March 2011, where it currently stands at 10.2 percent, according to the U.S. Bureau of Labor Statistics.

Vacancy, which currently stands at 5.2 percent, is projected to decline 60 bps during 2011. Class A developments average 3.6 percent vacancy, which is the lowest reported rate in more than a decade. Meanwhile, lower-tier communities reported a vacancy rate of 6.2 percent, according to Marcus & Millchap’s latest report on the metro.

Despite asset class, however, Johnson notes that location is still key. The East End and near the university, he says, were the only two areas that continued to build throughout the recession. “Beyond that it’s downtown, which is a strange hit-or-miss,” he reports. “It’s great anywhere close to downtown, but on the edges you get some good areas right next to bad areas; it’s just intermixed as redevelopment step-by-step wipes out the bad areas.”

Nearly 2,100 units are in the pipeline, according to Marcus & Millichap, though no developments are slated for delivery this year. More than 300 condo units, however, will be completed this year.

Cap rates for Class A properties will average in the low- to mid-7 percent range this year, while lower-tier buildings could trade 150 bps higher. The median price of apartment properties sold in Louisville over the last year was $40,500 per unit.